NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER
30, 2022 AND 2021
NOTE
1. DESCRIPTION OF BUSINESS
The
Glimpse Group, Inc. (“Glimpse” and together with its wholly owned subsidiaries, collectively, the “Company”)
is a Virtual (VR) and Augmented (AR) Reality company, comprised of a diversified portfolio of wholly owned VR and AR software and services
companies. Glimpse’s subsidiary companies are located in the United States, Turkey and Australia. The Company was incorporated
in the State of Nevada in June 2016.
Glimpse’s
robust VR/AR ecosystem, collaborative environment and business model strive to simplify the many challenges faced by companies in an
emerging industry. Glimpse cultivates, optimizes and manages business operations while providing a strong network of professional relationships,
thereby allowing the subsidiary company to maximize their time and resources in pursuit of mission-critical endeavors, reducing time
to market, optimizing costs, improving product quality and leveraging joint go-to-market strategies, while simultaneously providing investors
an opportunity to invest directly into the VR/AR industry via a diversified platform.
The
Company completed an initial public offering (“IPO”) of its common stock on the Nasdaq Capital Market Exchange (“Nasdaq”)
on July 1, 2021, under the ticker VRAR. In addition, pursuant to a Securities Purchase Agreement (“SPA”) the Company sold
additional common stock to certain institutional investors in November 2021. See Note 8.
NOTE
2. LIQUIDITY AND CAPITAL RESOURCES
The
Company incurred losses of $5.38 million and $1.66 million during the three months ended September 30, 2022 and 2021, respectively. These
losses were incurred as the Company funded operational expenses, primarily research and development, general and administrative, and
sales and marketing costs.
The
Company expects to continue to generate net losses for the foreseeable future as it makes investments to grow its business. Management
believes that the Company’s existing balances of cash and cash equivalents as of the issuance date of these financial statements,
which are approximately $10.0 million (excluding an additional $2 million held in escrow for potential future Sector 5 Digital, LLC (“S5D”)
acquisition performance payment obligations), will be sufficient to meet its anticipated cash requirements for at least twelve months
from the date that these financial statements are issued. However, should the Company’s current cash and cash equivalents not be
sufficient to support the development of its business to the point at which it has positive cash flows from operations, the Company plans
to meet its future needs for additional capital through equity and/or debt financings. Equity financings may include sales of common
stock, including the utilization of a $100 million S3 registration statement filed with the United State Securities and Exchange Commission
(“SEC”) on October 28, 2022. Such financing may not be available on terms favorable to the Company, or at all. If the Company
is unable to obtain adequate financing or financing on terms satisfactory to it when required, the Company’s ability to continue
to support its business growth, scale its infrastructure, develop product enhancements and to respond to business challenges could be
significantly impaired.
NOTE
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation
The
unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States for interim financial information and the rules and regulations of the SEC. In the opinion of management, the unaudited consolidated
financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments,
which include only normal recurring adjustments, necessary to present fairly the financial position as of September 30, 2022, the results
of operations for the three months ended September 30, 2022 and 2021, and cash flows for the three months ended September 30, 2022 and
2021. The financial data and other information disclosed in these notes to the interim financial statements related to these periods
are unaudited. The results for the three months ended September 30, 2022 are not necessarily indicative of the results to be expected
for the entire year ending June 30, 2023 or for any subsequent periods. The consolidated balance sheet at June 30, 2022 has been derived
from the audited consolidated financial statements as of that date.
THE
GLIMPSE GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER
30, 2022 AND 2021
Certain
information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally
accepted in the United States (“GAAP”) have been condensed or omitted pursuant to the Securities and Exchange Commission’s
rules and regulations.
These
unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes
thereto for the year ended June 30, 2022.
Principles
of Consolidation
The
accompanying consolidated financial statements include the balances of Glimpse and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use
of Accounting Estimates
The
preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the
accompanying consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
The
principal estimates relate to the valuation of allowance for doubtful accounts, stock options, warrants, revenue recognition, cost of
goods sold, allocation of the purchase price of assets relating to business combinations and calculation of contingent consideration
for acquisitions.
Cash
and Cash Equivalents, Restricted Cash
Cash
and cash equivalents consist of cash and deposits in bank checking accounts with immediate access and cash equivalents that represent
highly liquid investments.
Restricted
cash represents escrowed cash related to the S5D acquisition.
The
components of cash, cash equivalents and restricted cash on the consolidated statement of cash flows as of September 30, 2022 and 2021
are as follows:
SCHEDULE OF COMPONENTS OF CASH, CASH EQUIVALENTS
AND RESTRICTED CASH
| |
September 30, 2022 | | |
September 30, 2021 | |
| |
As of | | |
As of | |
| |
September 30, 2022 | | |
September 30, 2021 | |
Cash and cash equivalents | |
$ | 10,644,751 | | |
$ | 12,567,632 | |
Restricted cash | |
| 2,000,000 | | |
| - | |
Total | |
$ | 12,644,751 | | |
$ | 12,567,632 | |
Accounts
Receivable
Accounts
receivable consists primarily of amounts due from customers under normal trade terms. Allowances for uncollectible accounts are provided
for based upon a variety of factors, including historical amounts written-off, an evaluation of current economic conditions, and assessment
of customer collectability. As of September 30, 2022 and June 30, 2022 no allowance for doubtful accounts was recorded as all amounts
were considered collectible.
THE
GLIMPSE GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER
30, 2022 AND 2021
Customer
Concentration and Credit Risk
Two
customers accounted for approximately 55% (29% and 26%, respectively) of the Company’s total gross revenues during the three months
ended September 30, 2022. One of the same customers and a different customer accounted for approximately 70% (56% and 14%, respectively)
of the Company’s total gross revenues during the three months ended September 30, 2021.
One
customer accounted for approximately 34% of the Company’s accounts receivable at September 30, 2022. The same customer and a different
customer accounted for approximately 59% (37% and 22%, respectively) of the Company’s accounts receivable as of June 30, 2022.
The
Company maintains cash in accounts that, at times, may be in excess of the Federal Deposit Insurance Corporation limit. The Company has
not experienced any losses on such accounts.
Business
Combinations
The
results of a business acquired in a business combination are included in the Company’s consolidated financial statements from the
date of the acquisition. Purchase accounting results in assets and liabilities of an acquired business generally being recorded at their
estimated fair values as of the acquisition date. Any excess consideration over the fair value of assets acquired and liabilities assumed
is recognized as goodwill. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.
The
Company performs valuations of assets acquired and liabilities assumed and allocates the purchase price to its respective assets and
liabilities. Determining the fair value of assets acquired and liabilities assumed may require management to use significant judgment
and estimates, including the selection of valuation methodologies, estimates of future revenues, costs and cash flows. Estimates of fair
value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual
results may differ from estimates. During the measurement period, which is typically one year from the acquisition date, if new information
is obtained about facts and circumstances that existed as of the acquisition date, changes in the estimated values of the net assets
recorded may change the amount of the purchase price allocated to goodwill. Upon the conclusion of the measurement period, any subsequent
adjustments are recorded in the consolidated statement of operations. At times, the Company engages the assistance of valuation specialists
in concluding on fair value measurements in connection with determining fair values of assets acquired and liabilities assumed in a business
combination.
Further,
during the year ended June 30, 2022, the Company early adopted ASU No. 2021-08, Business Combinations (Topic 805): Accounting for
Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer to account for the related revenue
contracts, acquired in the business acquisition, in accordance with ASC Topic 606 Revenue from Contracts with a Customer as if
the Company had originated the contracts.
Intangible
assets (other than Goodwill)
Intangibles
represent the allocation of a portion of the acquisition’s purchase price (see Note 5). Intangibles are stated at allocated cost
less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the related
assets. The Company reviews intangibles, being amortized, for impairment when current events indicate that the fair value may be less
than the carrying value.
THE
GLIMPSE GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER
30, 2022 AND 2021
Goodwill
Goodwill
represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted
for under the acquisition method. Goodwill is not amortized but instead is tested at least annually for impairment, or more frequently
when events or changes in circumstances indicate that goodwill might be impaired.
Fair
Value of Financial Instruments
Fair
value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
The fair value hierarchy, which is based on three levels of inputs, the first two of which are considered observable and the last unobservable,
that may be used to measure fair value, is as follows:
●
Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities;
●
Level 2 — inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets
or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities; or
● Level 3 —
unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or
liabilities.
The
Company classifies its cash equivalents and investments within Level 1 of the fair value hierarchy on the basis of valuations based on
quoted prices for the specific securities in an active market.
The
Company’s contingent consideration is categorized as Level 3 within the fair value hierarchy. Contingent consideration is recorded
within contingent consideration, current and contingent consideration, non-current in the Company’s consolidated balance sheets
as of September 30 and June 30, 2022. Contingent consideration has been recorded at its fair values using unobservable inputs and have
included using the Monte Carlo simulation option pricing framework, incorporating contractual terms and assumptions regarding financial
forecasts, discount rates, and volatility of forecasted revenue. The development and determination of the unobservable inputs for Level
3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance of
a third-party valuation specialist.
The
Company’s other financial instruments consist primarily of accounts receivable, note receivable, accounts payable, accrued liabilities
and other liabilities approximate fair value due to the short-term nature of these instruments.
THE
GLIMPSE GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER
30, 2022 AND 2021
Revenue
Recognition
Nature
of Revenues
The
Company reports its revenues in two categories:
| ● | Software
Services: Virtual and Augmented Reality projects, solutions and consulting services. |
| | |
| ● | Software
License and Software-as-a-Service (“SaaS”): Virtual and Augmented Reality software
that is sold either as a license or as a SaaS subscription. |
The
Company applies the following steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations
under each of its agreements:
| ● | identify
the contract with a customer; |
| ● | identify
the performance obligations in the contract; |
| ● | determine
the transaction price; |
| ● | allocate
the transaction price to performance obligations in the contract; |
| ● | recognize
revenue as the performance obligation is satisfied; |
| ● | determine
that collection is reasonably assured. |
Revenue
is recognized when the Company satisfies its performance obligation under the contract by transferring the promised product to its customer
or service is performed and collection is reasonably assured. A performance obligation is a promise in a contract to transfer a distinct
product or service to a customer. A portion of the Company’s contracts have a single performance obligation, as the promise to
transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct. Other
contracts can include various services and products which are at times capable of being distinct, and therefore may be accounted for
as separate performance obligations.
Revenue
is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services.
As such, revenue is recorded net of returns, allowances, customer discounts, and incentives. Sales taxes and other taxes are excluded
from revenues.
For
distinct performance obligations recognized at a point in time, any unrecognized portion of revenue and any corresponding unrecognized
expenses are presented as deferred revenue/contract liability and deferred costs/contract asset, respectively, in the accompanying consolidated
balance sheets. Contract assets include cash and equity based payroll costs, and may include payments to consultants and vendors.
For
distinct performance obligations recognized over time, the Company records a contract asset (costs in excess of billings) when revenue
is recognized prior to invoicing, or a contract liability (billings in excess of costs) when revenue is recognized subsequent to invoicing.
Significant
Judgments
The
Company’s contracts with customers may include promises to transfer multiple products/services. Determining whether products/services
are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.
Further, judgment may be required to determine the standalone selling price for each distinct performance obligation.
Disaggregation
of Revenue
The
Company generated revenue for the three months ended September 30, 2022 and 2021 by delivering: (i) Software Services, consisting primarily
of VR/AR software projects, solutions and consulting services, and (ii) Software Licenses & SaaS, consisting primarily of VR and
AR software licenses or SaaS. The Company currently generates its revenues primarily from customers in the United States.
THE
GLIMPSE GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER
30, 2022 AND 2021
Revenue
for a significant portion of Software Services projects and solutions (projects whereby, the development of the project leads to an identifiable
asset with an alternative use to the Company) is recognized at the point of time in which the customer obtains control of the project,
customer accepts delivery and confirms completion of the project. Certain other Software Services revenues are custom project solutions
(projects whereby, the development of the custom project leads to an identifiable asset with no alternative use to the Company, and,
in which, the Company also has an enforceable right to payment under the contract) and are therefore recognized based on the percentage
of completion using an input model with a master budget. The budget is reviewed periodically and percentage of completion adjusted accordingly.
Revenue
for Software Services consulting services and website maintenance is recognized when the Company performs the services, typically on
a monthly retainer basis.
Revenue
for Software License is recognized at the point of time in which the Company delivers the software and customer accepts delivery. If
there are significant contractually stated ongoing service obligations to be performed during the term of the Software License or SaaS
contract, then revenues are recognized ratably over the term of the contract.
Timing
of Revenue
The
timing of revenue recognition for the three months ended September 30, 2022 and 2021 was as follows:
SCHEDULE
OF TIMING REVENUE RECOGNITION
| |
2022 | | |
2021 | |
| |
For the Three Months Ended | |
| |
September 30, | |
| |
2022 | | |
2021 | |
Products and services transferred at a point in time | |
$ | 2,996,948 | | |
$ | 955,751 | |
Products and services transferred/recognized over time | |
| 954,076 | | |
| 66,782 | |
Total Revenue | |
$ | 3,951,024 | | |
$ | 1,022,533 | |
Remaining
Performance Obligations
Timing
of revenue recognition may differ from the timing of invoicing to customers. The Company generally records a receivable/contract asset
when revenue is recognized prior to invoicing, or deferred revenue/contract liability when revenue is recognized subsequent to invoicing.
For
certain Software Services project contracts the Company invoices customers after the project has been delivered and accepted by the customer.
Software Service project contracts typically consist of designing and programming software for the customer. In most cases, there is
only one distinct performance obligation, and revenue is recognized upon completion, delivery and customer acceptance. Contracts may
include multiple distinct projects that can each be implemented and operated independently of subsequent projects in the contract. In
such cases, the Company accounts for these projects as separate distinct performance obligations and recognizes revenue upon the completion
of each project or obligation, its delivery and customer acceptance.
For
contracts recognized over time, contract liabilities include billings invoiced for software projects for which the contract’s performance
obligations are not complete.
For
certain other Software Services project contracts, the Company invoices customers for a substantial portion of the project upon entering
into the contract due to their custom nature and revenue is recognized based upon percentage of completion. Revenue recognized subsequent
to invoicing is recorded as a deferred revenue/contract liability (billings in excess of cost) and revenue recognized prior to invoicing
is recorded as a deferred cost/contract asset (cost in excess of billings).
THE
GLIMPSE GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER
30, 2022 AND 2021
For
Software Services consulting or retainer contracts, the Company generally invoices customers monthly at the beginning of each month in
advance for services to be performed in the following month. The sole performance obligation is satisfied when the services are performed.
Software Services consulting or retainer contracts typically consist of ongoing support for a customer’s software or specified
business practices.
For
Software License contracts, the Company generally invoices customers when the software has been delivered to and accepted by the customer,
which is also when the performance obligation is satisfied. For SaaS contracts, the Company generally invoices customers in advance at
the beginning of the service term.
For
multi-period Software License contracts, the Company generally invoices customers annually at the beginning of each annual coverage period.
Software License contracts consist of providing clients with software designed by the Company. For Software License contracts, there
are generally no ongoing support obligations unless specified in the contract (becoming a Software Service).
Unfulfilled
performance obligations represent amounts expected to be earned by the Company on executed contracts. As of September 30, 2022, the Company
had approximately $3.21 million in unfulfilled performance obligations.
Employee
Stock-Based Compensation
The
Company recognizes stock-based compensation expense related to grants to employees or service providers based on grant date fair values
of common stock or the stock options, which are amortized over the requisite period, as well as forfeitures as they occur.
The
Company values the options using the Black-Scholes Merton (“Black Scholes”) method utilizing various inputs such as expected
term, expected volatility and the risk-free rate. The expected term reflects the application of the simplified method, which is the weighted
average of the contractual term of the grant and the vesting period for each tranche. Expected volatility is derived from a weighted
average of volatility inputs for the Company. The risk-free rate is based on the implied yield of U.S. Treasury notes as of the grant
date with a remaining term approximately equal to the expected life of the award.
Research
and Development Costs
Research
and development expenses are expensed as incurred, and include payroll, employee benefits and stock-based compensation expense. Research
and development expenses also include third-party development and programming costs. Given the emerging industry and uncertain market
environment the Company operates in, research and development costs are not capitalized.
Earnings
Per Share
Basic
earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during
the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential
shares of common stock outstanding during the period using the treasury stock method. Dilutive potential common shares include the issuance
of potential shares of common stock for outstanding stock options, warrants and convertible debt.
Reclassifications
Certain
accounts in the prior period financial statements have been reclassified for comparative purposes to conform with the presentation in
the current period financial statements.
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2022 AND 2021
Recently Adopted Accounting Pronouncements
Leases
Adoption of the New Lease Accounting Standard
On July 1, 2022, the Company adopted ASU No. 2016-02,
Leases (Topic 842), using the modified retrospective transition method applied at the adoption date of the standard. Results for reporting
periods beginning after July 1, 2022 are presented under the new leasing standard, while prior period amounts are not adjusted and continue
to be reported in accordance with the Company’s historic accounting. The Company has elected to utilize the package of practical
expedients at the time of adoption, which allows the Company to (1) not reassess whether any expired or existing contracts are or contain
leases, (2) not reassess the lease classification of any expired or existing leases, and (3) not reassess initial direct costs for any
existing leases. The Company also has elected to utilize the short-term lease recognition exemption and, for those leases that qualified,
the Company did not recognize right-of-use (“ROU”) assets or lease liabilities. As a result of adoption, the Company recorded
ROU assets related to office facility leases which are recognized on the consolidated balance sheet and the associated lease liabilities
are recognized on the consolidated balance sheet. The present value of the Company’s remaining lease payments, which comprise the
lease liabilities, was estimated using an estimated incremental borrowing rate as of the adoption date.
The adoption resulted in no adjustment to July 1,
2022 accumulated deficit on the consolidated balance sheet.
As of July 1, 2022, the Company recorded right-of-use
assets of $0.75 million, lease liabilities, current portion of $0.32 million and lease liabilities, net of current portion of $0.43 million.
With the purchase of Brightline Interactive, LLC (“BLI”), on August 1, 2022, the Company added right-of-use assets of $0.41
million, lease liabilities, current portion of $0.12 million and lease liabilities, net of current portion of $0.29 million.
New Lease Accounting Policies
The Company determines if an arrangement is a lease
at inception and determines the classification of the lease, as either operating or finance, at commencement.
For short-term leases with expected terms of less
than 1 year, the Company does not recognize ROU assets or lease liabilities. The Company does not have any finance leases. ROU assets
represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make
lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present
value of lease payments over the lease term. As the rate implicit in the Company’s leases is not readily determinable, the Company
uses an estimated incremental borrowing rate based on the information available at the lease commencement date in determining the present
value of lease payments. The Company estimates the incremental borrowing rate to reflect the profile of secured borrowing over the expected
term of the leases based on the information available at the later of the initial date of adoption or the lease commencement date.
Recent Accounting Pronouncements
Management does not believe that any recently issued,
but not yet effective, accounting standards if currently adopted would have a material effect on the Company’s financial statements.
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2022 AND 2021
NOTE 4. ACQUISITION
Purchase of BLI
On May 25, 2022, Glimpse entered into an Agreement
and Plan of Merger (the “Merger Agreement”), with BLI and each of the equity holders of BLI named therein (collectively, the
“Members”). BLI is an immersive technology company that provides VR and AR based training scenarios and simulations for commercial
and government customers. The acquisition significantly expands the Company’s operating and financial scale, introduces new tier
1 customers specifically in the communication, entertainment and government segments, and bolsters the executive management team.
In August 2022, BLI became a wholly-owned subsidiary
of Glimpse.
The aggregate consideration to the Members per the
Agreement consisted of: (a) $568,046 cash paid (net of working capital adjustments, as defined, of $505,787) at August 1, 2022 closing
(the “Closing”); (b) $1,926,167 of cash paid at the Closing to extinguish BLI’s outstanding debt and pay down other
obligations; (c) 714,286 shares of the Company’s common stock fair valued at the Closing; and (d) future purchase price considerations
payable to the Members, up to a residual of $24,500,000. The $24,500,000 is based and payable on BLI’s achievement of certain revenue
growth milestones at points in time and cumulatively during the three years post-Closing date, the payment of which shall be made up to
$12,000,000 in cash and the remainder in common shares of the Company, priced at the dates of the future potential share issuance subject
to a common stock price floor of $7.00 per share.
The fair value allocation for the purchase price consideration
paid at Closing was recorded as follows:
SCHEDULE
OF BUSINESS ACQUISITION PURCHASE PRICE CONSIDERATION
Purchase price consideration: | |
| |
Cash paid to members at Closing | |
$ | 2,494,213 | |
Company common stock fair value at Closing | |
| 2,846,144 | |
Fair value of contingent consideration to be achieved | |
| 6,139,000 | |
Total purchase price | |
$ | 11,479,357 | |
| |
| | |
Fair value allocation of purchase price: | |
| | |
Cash and cash equivalents | |
$ | 15,560 | |
Accounts receivable | |
| 253,041 | |
Deferred costs/contract assets | |
| 552,625 | |
Other assets | |
| 90,000 | |
Equipment, net | |
| 55,580 | |
Accounts payable and accrued expenses | |
| (848,079 | ) |
Deferred revenue/contract liabilities | |
| (2,037,070 | ) |
Intangible assets - customer relationships | |
| 3,310,000 | |
Intangible assets - technology | |
| 880,000 | |
Goodwill | |
| 9,207,700 | |
Total fair value allocation of purchase price | |
$ | 11,479,357 | |
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2022 AND 2021
The Company’s fair value estimate of the contingent
consideration for the BLI acquisition was determined using a Monte Carlo simulation and other methods which account for the probabilities
of various outcomes. The Company’s fair value estimate related to the identified intangible asset of customer relationships was
determined using the Multi-Period Excess Earnings Method. This valuation method requires management to project revenues, customer attrition
and cash flows for the reporting unit over a multiyear period, as well as determine the weighted average cost of capital to be used as
a discount rate. The Company’s fair value estimate related to the identified intangible asset of technology was determined using
the Relief from Royalty Method. This valuation method requires management to estimate the royalty rate based on market data for royalty
arrangements involving similar technology, the obsolesce rate, and the weighted average cost of capital to be used as a discount rate.
The goodwill recognized in connection with the acquisition
is primarily attributable to new markets access and will be deductible for tax purposes.
In accordance with GAAP, the fair value of the contingent
consideration was remeasured as of September 30, 2022, based on market conditions as of that date. The remeasurement resulted in a fair
value amount as of September 30, 2022 of $6.31 million, an increase of approximately $0.17 million since Closing. The increase in fair
value of the contingent consideration is driven by an increase in the Company’s common stock price between the measurement dates.
This increase is recorded in operating expenses on the consolidated statement of operations.
Unaudited Pro Forma Results
The unaudited pro forma financial information in the
table below summarizes the combined results of operations for the Company and BLI, as if the companies were combined for the three months
ended September 30, 2022. The unaudited pro forma financial information includes the business combination accounting effects resulting
from this acquisition, including adjustments to reflect recognition of intangible asset amortization. The unaudited pro forma financial
information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that
would have been achieved if the acquisitions had taken place at July 1, 2022.
The approximate unaudited pro forma financial information
if BLI was included since July 1, 2022 would be:
SCHEDULE OF PROFORMA FINANCIAL INFORMATION
| |
For the Three
Months
Ended
September 30,2022 | |
| |
| |
Revenue | |
$ | 3,954,000 | |
Net Loss | |
$ | (5,534,000 | ) |
The pro forma net loss was adjusted to exclude approximately
$0.27 million of acquisition-related costs incurred in 2022. The 2022 pro forma net loss includes a loss of approximately $0.17 million
for contingent consideration fair value adjustments.
Costs related to the acquisition, which include legal,
accounting and valuation fees, in the amount of approximately $0.27 million have been charged directly to operations and are included
in general and administrative expenses on the consolidated statement of operations for the three months ended September 30, 2022.
The Company recognized approximately $1.51 million
in revenue and $0.25 million (inclusive of contingent consideration fair value adjustment expense of $0.2 million) of net loss related
to BLI since the acquisition Closing date of August 1, 2022 through September 30, 2022 in the consolidated statement of operations.
The BLI acquisition above was considered a business
combination in accordance with GAAP.
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2022 AND 2021
NOTE 5. INTANGIBLE ASSETS
Intangible assets, their respective amortization period,
and accumulated amortization as of September 30, 2022 are as follows:
SCHEDULE
OF INTANGIBLE ASSETS, AMORTIZATION PERIOD AND ACCUMULATED AMORTIZATION
| |
As of September 30, 2022 | |
| |
Value ($) | | |
Amortization Period (Years) | |
| |
AUGGD | | |
XR Terra | | |
S5D | | |
PulpoAR | | |
BLI | | |
Total | | |
| |
Intangible Assets | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Customer Relationships | |
$ | 250,000 | | |
$ | - | | |
$ | 2,820,000 | | |
| - | | |
$ | 3,310,000 | | |
$ | 6,380,000 | | |
| 5 (S5D & BLI) / 3 (AUGGD) | |
Technology | |
| 250,000 | | |
| 300,000 | | |
| - | | |
| 925,000 | | |
| 880,000 | | |
$ | 2,355,000 | | |
| 3 | |
Less: Accumulated Amortization | |
| (187,488 | ) | |
| (99,996 | ) | |
| (376,000 | ) | |
| (102,776 | ) | |
| (159,222 | ) | |
$ | (925,482 | ) | |
| | |
Intangible Assets, net | |
$ | 312,512 | | |
$ | 200,004 | | |
$ | 2,444,000 | | |
$ | 822,224 | | |
$ | 4,030,778 | | |
$ | 7,809,518 | | |
| | |
Intangible asset amortization expense for the three
months ended September 30, 2022 was approximately $0.44 million.
Estimated intangible asset amortization expense for
the remaining lives are as follows:
SCHEDULE OF INTANGIBLE ASSET AMORTIZATION EXPENSE
| |
| | |
Remaining Fiscal Year Ended June 30, 2023 | |
$ | 1,571,000 | |
Fiscal Year Ended June 30, 2024 | |
$ | 2,094,000 | |
Fiscal Year Ended June 30, 2025 | |
$ | 1,848,000 | |
Fiscal Year Ended June 30, 2026 | |
$ | 1,250,000 | |
Fiscal Year Ended June 30, 2027 | |
$ | 991,000 | |
Fiscal Year Ended June 30, 2028 | |
$ | 55,000 | |
NOTE 6. FINANCIAL INSTRUMENTS
Cash and Cash Equivalents and Investments
The Company’s money market funds and investments
(short term, investment grade corporate bonds) are categorized as Level 1 within the fair value hierarchy. As of September 30 and June
30, 2022, the Company’s cash and cash equivalents and investments were as follows:
SCHEDULE
OF CASH AND CASH EQUIVALENTS AND INVESTMENTS
| |
As
of September 30, 2022 | |
| |
Cost | | |
Unrealized
Gain (Loss) | | |
Fair
Value | | |
Cash
and Cash Equivalents | | |
Investments | |
Cash
| |
$ | 1,076,007 | | |
$ | - | | |
| | | |
$ | 1,076,007 | | |
| | |
Level
1: | |
| | | |
| | | |
| | | |
| | | |
| | |
Money
market funds | |
| 9,568,744 | | |
| - | | |
| 9,568,744 | | |
| 9,568,744 | | |
| | |
Total
cash and cash equivalents | |
$ | 10,644,751 | | |
$ | - | | |
$ | 9,568,744 | | |
$ | 10,644,751 | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Level
1: | |
| | | |
| | | |
| | | |
| | | |
| | |
Investments
| |
$ | 249,497 | | |
$ | (6,894 | ) | |
$ | 242,603 | | |
| | | |
$ | 242,603 | |
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2022 AND 2021
| |
As
of June 30, 2022 | |
| |
Cost | | |
Unrealized
Gain (Loss) | | |
Fair
Value | | |
Cash
and Cash Equivalents | | |
Investments | |
Cash | |
$ | 1,233,608 | | |
$ | - | | |
| | | |
$ | 1,233,608 | | |
| | |
Level
1: | |
| | | |
| | | |
| | | |
| | | |
| | |
Money
market funds | |
| 15,016,058 | | |
| - | | |
| 15,016,058 | | |
| 15,016,058 | | |
| | |
Total
cash and cash equivalents | |
$ | 16,249,666 | | |
$ | - | | |
$ | 15,016,058 | | |
$ | 16,249,666 | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Level
1: | |
| | | |
| | | |
| | | |
| | | |
| | |
Investments | |
$ | 245,187 | | |
$ | (5,873 | ) | |
$ | 239,314 | | |
| | | |
$ | 239,314 | |
Contingent Consideration
As of September 30 and June 30, 2022, the Company’s
contingent consideration liabilities related to the acquisitions are categorized as Level 3 within the fair value hierarchy. Contingent
consideration was valued at the time of acquisitions and at September 30 and June 30, 2022 using unobservable inputs and have included
using the Monte Carlo simulation model. This model incorporates revenue volatility, internal rate of return, and risk-free rate. The development
and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of
the Company’s management with the assistance of a third-party valuation specialist.
A summary of the quantitative significant inputs used
to value S5D’s contingent consideration as of September 30, 2022 was: revenue volatility of 61.5%, weighted average cost of capital
discount rate of 16.4% and risk-free rate of 4.2%. The market price of the Company’s common stock as of September 30, 2022 was also
used.
A summary of the quantitative significant inputs used
to value BLI’s contingent consideration as of September 30, 2022 was: revenue volatility of 70.2%, weighted average cost of capital
discount rate of 14.3% and risk-free rate of 4.2%. The market price of the Company’s common stock as of September 30, 2022 was also
used.
As of September 30, 2022, the Company’s contingent
consideration liability related to XR Terra, LLC (“XRT”) is categorized as Level 3 within the fair value hierarchy as it is
based on contractual amounts pursuant to the acquisition agreement, of which certain inputs are unobservable.
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2022 AND 2021
As of September 30, 2022, the Company’s contingent
consideration liabilities current and non-current balances were as follows:
SCHEDULE
OF FAIR VALUE OF CONTINGENT CONSIDERATION
| |
Contingent Consideration at Purchase Date | | |
Changes in Fair Value | | |
Fair Value | | |
Contingent Consideration | |
| |
As of September 30, 2022 | |
| |
Contingent Consideration at Purchase Date | | |
Changes in Fair Value | | |
Fair Value | | |
Contingent Consideration | |
Level 3: | |
| | | |
| | | |
| | | |
| | |
Contingent consideration, current - S5D | |
$ | 2,060,300 | | |
$ | (136,300 | ) | |
$ | 1,924,000 | | |
$ | 1,924,000 | |
Contingent consideration, current - BLI | |
| 1,841,100 | | |
| 117,900 | | |
| 1,959,000 | | |
| 1,959,000 | |
Contingent consideration, current - XRT | |
| - | | |
| 197,498 | | |
| 197,498 | | |
| 197,498 | |
Total contingent consideration, current portion | |
$ | 3,901,400 | | |
$ | 179,098 | | |
$ | 4,080,498 | | |
$ | 4,080,498 | |
| |
| | | |
| | | |
| | | |
| | |
Level 3: | |
| | | |
| | | |
| | | |
| | |
Contingent consideration, non-current - S5D | |
$ | 7,108,900 | | |
$ | (55,000 | ) | |
$ | 7,053,900 | | |
$ | 7,053,900 | |
Contingent consideration, non-current - BLI | |
| 4,297,900 | | |
| 48,500 | | |
| 4,346,400 | | |
| 4,346,400 | |
Total contingent consideration, net of current portion | |
$ | 11,406,800 | | |
$ | (6,500 | ) | |
$ | 11,400,300 | | |
$ | 11,400,300 | |
The change in fair value of contingent consideration
for the three months ended September 30, 2022 was approximately $2.60 million of expense, included as change in fair value of acquisition
contingent consideration in the consolidated statement of operations.
A summary of the quantitative significant inputs used
to value S5D’s contingent consideration as of June 30, 2022 was: revenue volatility of 60.1%, weighted average cost of capital discount
rate of 15.1% and risk-free rate of 3.0%. The market price of the Company’s common stock as of June 30, 2022 was also used.
As of June 30, 2022, the Company’s contingent
consideration liability related to MotionZone, LLC (“AUGGD”) is categorized as Level 3 within the fair value hierarchy as
it is based on contractual amounts pursuant to the acquisition agreement, of which certain inputs are unobservable.
There was no change in fair value of contingent consideration
for the three months ended September 30, 2021.
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2022 AND 2021
NOTE 7. DEFERRED COSTS/CONTRACT ASSETS and DEFERRED
REVENUE/CONTRACT LIABILITIES
At September 30 and June 30, 2022, deferred costs/contract
assets totaling $268,552 and $39,484, respectively, consists of costs deferred under contracts not completed and recognized at a point
in time ($161,557 and $35,469, respectively), and costs in excess of billings under contracts not completed and recognized over time ($106,995
and $4,015, respectively). At September 30 and June 30, 2022, deferred revenue/contract liabilities, totaling $1,224,748 and $841,389,
respectively, consists of revenue deferred under contracts not completed and recognized at a point in time ($1,088,589 and $533,214, respectively),
and costs in excess of billings under contracts not completed and recognized over time ($136,159 and $308,175 respectively).
The following table shows the reconciliation of the
costs in excess of billings and billings in excess of costs for contracts recognized over time:
SCHEDULE
OF RECONCILIATION OF COST IN EXCESS OF BILLING FOR CONTRACT RECOGNIZED OVER TIME
| |
As
of
September 30, 2022 | |
| |
| |
Cost
incurred on uncompleted contracts | |
$ | 328,070 | |
Estimated
earnings | |
| 480,887 | |
Earned
revenue | |
| 808,957 | |
Less:
billings to date | |
| 838,121 | |
Billings
in excess of costs, net | |
$ | (29,164 | ) |
| |
| | |
Balance
Sheet Classification | |
| | |
Contract
assets includes, costs and estimated earnings in excess of billings on uncompleted contracts | |
$ | 106,995 | |
Contract
liabilities includes, billings in excess of costs and estimated earnings on uncompleted contracts | |
| (136,159 | ) |
Billings
in excess of costs, net | |
$ | (29,164 | ) |
NOTE 8. EQUITY
Initial Public Offering (“IPO”)
On July 1, 2021, the Company completed an IPO of common
stock on the Nasdaq under the symbol “VRAR”, at a price of $7.00 per share.
The Company sold approximately 1.91 million shares
of common stock and realized net proceeds (after underwriting, professional fees and listing expenses) of $11.82 million.
In connection with the IPO, and for services rendered,
the underwriter was issued a warrant to purchase 87,500 shares of common stock at $7.00 per share. The warrant could not be exercised
prior to December 30, 2021 and expires in June 2026. The warrant was valued at approximately $0.52 million based on the Black-Scholes
options pricing model method with the following assumptions: 5 year expected term, 129% expected volatility, 0.87% risk-free rate and
0% expected dividend yield.
In conjunction with the IPO, outstanding convertible
promissory notes totaling approximately $1.43 million were satisfied in full through the issuance of 324,150 shares of common stock. A
loss of approximately $0.28 million was recorded on this conversion at the time of the IPO.
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2022 AND 2021
Securities Purchase Agreement (“SPA”)
In November 2021, the Company sold $15.0 million worth
of its common stock and warrants to certain institutional investors in a private placement pursuant to a SPA. The Company realized net
proceeds (after underwriting, professional fees and listing expenses) of $13.58 million.
Under the terms of the SPA, the Company sold 1.50
million shares of its common stock and warrants to purchase 0.75 million shares of common stock. The purchase price for one share of common
stock and half a corresponding warrant was $10.00. The warrants have an exercise price of $14.63 per share. Warrants to purchase 0.56 million shares could be exercised immediately and expire five years from the date of the SPA. Warrants to purchase 0.19 million shares
were not exercisable prior to May 2, 2022 and expire five years after. The warrants are valued at approximately $8.80 million based on
the Black-Scholes options pricing model method with the following assumptions: 5 year expected term, 146% expected volatility, 1.22% risk-free
rate and 0% expected dividend yield.
Common Stock Issued
Common stock sold to Investors
During the three months ended September 30, 2021,
the Company sold approximately 1.91 million shares of common stock to investors at the IPO at a price of $7.00 per share, for total net
proceeds of approximately $11.82 million.
Common stock issued to Investors
During the three months ended September 30, 2021,
in connection with the conversion of convertible promissory notes and in conjunction with the IPO, the Company issued approximately 324,000
shares of common.
Common stock issued for Acquisitions
During the three months ended September 30, 2022,
the Company issued approximately 714,000 shares of common stock, valued at $2.85 million, as consideration for the acquisition of BLI
(see Note 4). During the three months ended September 30, 2021, the Company issued approximately 77,000 shares of common stock, valued
at $0.75 million, as consideration for the acquisition of AUGGD.
Common stock issued for satisfaction of contingent
consideration
During the three months ended September 30, 2022 the
Company issued approximately 107,000 shares of common stock, with a fair value of approximately $0.32 million, to satisfy a contingent
acquisition obligation of approximately $0.57 million less the repayment of a secured promissory note of $0.25 million (see Note 10),
related to the acquisition of AUGGD (see Note 11). During the three months ended September 30, 2021, Company issued 375,000 shares of
common stock to satisfy legacy acquisition obligations of $0.75 million.
Common stock issued to Vendors
During the three months ended September 30, 2021,
the Company issued approximately 6,000 shares of common stock, to various vendors for services performed and recorded share-based compensation
of approximately $0.07 million.
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2022 AND 2021
Common stock issued for Exercise of Stock Options
During the three months ended September 30, 2022 and
2021, the Company issued approximately 25,000 and 17,000 shares of common stock in cash and cashless transactions, respectively, upon
exercise of the respective option grants and realized cash proceeds of approximately $0.04 million and $0.05 million, respectively.
Employee Stock-Based Compensation
The Company’s 2016 Equity Incentive Plan (the
“Plan”), as amended, has approximately 10.6 million common shares reserved for issuance. As of September 30, 2022, there were
approximately 5.0 million shares available for issuance under the Plan.
The Company recognizes compensation expense relating
to awards ratably over the requisite period, which is generally the vesting period.
Stock options have been recorded at their fair value.
The Black-Scholes option-pricing model assumptions used to value the issuance of stock options under the Plan, are noted in the following
table:
SCHEDULE
OF STOCK OPTION FAIR VALUE ASSUMPTIONS
| |
2022 | | |
2021 | |
| |
For the Three Months Ended
September 30, | |
| |
2022 | | |
2021 | |
Weighted average expected terms (in years) | |
| 6.5 | | |
| 5.4 | |
Weighted average expected volatility | |
| 101.4 | % | |
| 146.1 | % |
Weighted average risk-free interest rate | |
| 2.9 | % | |
| 0.9 | % |
Expected dividend yield | |
| 0.0 | % | |
| 0.0 | % |
The grant date fair value, for options granted during
the three months ended September 30, 2022 and 2021 was approximately $1.25 million and $0.61 million, respectively.
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2022 AND 2021
The following is a summary of the Company’s
stock option activity for the three months ended September 30, 2022 and 2021:
SUMMARY
OF STOCK OPTION ACTIVITY
| |
| | |
Weighted Average | | |
| |
| |
| | |
| | |
Remaining | | |
| |
| |
| | |
Exercise | | |
Contractual | | |
Intrinsic | |
| |
Options | | |
Price | | |
Term (Yrs) | | |
Value | |
Outstanding at July 1, 2022 | |
| 4,484,616 | | |
$ | 4.68 | | |
| 7.0 | | |
$ | 2,404,249 | |
Options Granted | |
| 321,787 | | |
| 7.00 | | |
| 9.9 | | |
| - | |
Options Exercised | |
| (66,853 | ) | |
| 4.13 | | |
| 7.1 | | |
| 93,945 | |
Options Forfeited / Cancelled | |
| (72,099 | ) | |
| 8.86 | | |
| 9.0 | | |
| 13,273 | |
Outstanding at September 30, 2022 | |
| 4,667,451 | | |
$ | 4.77 | | |
| 6.9 | | |
$ | 6,429,851 | |
Exercisable at September 30, 2022 | |
| 3,509,358 | | |
$ | 3.59 | | |
| 6.0 | | |
$ | 6,382,458 | |
| |
| | |
Weighted Average | | |
| |
| |
| | |
| | |
Remaining | | |
| |
| |
| | |
Exercise | | |
Contractual | | |
Intrinsic | |
| |
Options | | |
Price | | |
Term (Yrs) | | |
Value | |
Outstanding at July 1, 2021 | |
| 4,740,910 | | |
$ | 3.40 | | |
| 8.5 | | |
$ | 7,893,467 | |
Options Granted | |
| 94,666 | | |
| 7.11 | | |
| 9.9 | | |
| 423,923 | |
Options Exercised | |
| (392,394 | ) | |
| 2.14 | | |
| 7.2 | | |
| (3,720,795 | ) |
Options Forfeited / Cancelled | |
| (82,838 | ) | |
| 4.61 | | |
| 9.5 | | |
| (563,393 | ) |
Outstanding at September 30, 2021 | |
| 4,360,344 | | |
$ | 3.58 | | |
| 8.6 | | |
$ | 16,283,017 | |
Exercisable at September 30, 2021 | |
| 4,143,324 | | |
$ | 3.47 | | |
| 8.5 | | |
$ | 15,852,955 | |
The Company’s stock option-based expense for
the three months ended September 30, 2022 and 2021 consisted of the following:
SCHEDULE
OF STOCK OPTION-BASED EXPENSE
| |
| | |
| |
| |
Three Months Ended September 30, 2022 | | |
Three Months Ended September 30, 2021 | |
Stock option-based expense : | |
| | | |
| | |
Research and development expenses | |
$ | 387,440 | | |
$ | 347,597 | |
General and administrative expenses | |
| 54,274 | | |
| 66,643 | |
Sales and marketing expenses | |
| 186,660 | | |
| 127,992 | |
Cost of goods sold | |
| 694 | | |
| 22,764 | |
Board option expense | |
| 146,784 | | |
| 88,619 | |
Total | |
$ | 775,852 | | |
$ | 653,615 | |
At September 30, 2022 total unrecognized compensation
expense to employees, board members and vendors related to stock options was approximately $6.82 million, and is expected to be recognized
over a weighted average period of 2.29 years.
The intrinsic value of stock options at September
30, 2022 and 2021 was computed using a fair market value of the common stock of $5.29/share and $7.29/share, respectively.
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2022 AND 2021
NOTE 9. EARNINGS PER SHARE
The following table presents the computation of basic
and diluted net loss per common share:
SCHEDULE
OF COMPUTATION OF BASIC AND DILUTED NET LOSS PER SHARE
| |
| | |
| |
| |
For the Three Months Ended | |
| |
September 30, | |
Numerator: | |
2022 | | |
2021 | |
Net loss | |
$ | (5,382,727 | ) | |
$ | (1,656,761 | ) |
Denominator: | |
| | | |
| | |
Weighted-average common shares outstanding for basic and diluted net loss per share | |
| 13,317,188 | | |
| 9,967,821 | |
Basic and diluted net loss per share | |
$ | (0.40 | ) | |
$ | (0.17 | ) |
Potentially dilutive securities that were not included
in the calculation of diluted net loss per share attributable to common stockholders because their effect would be anti-dilutive are as
follows (in common equivalent shares):
SCHEDULE
OF POTENTIALLY DILUTIVE SECURITIES
| |
At
September 30, 2022 | | |
At
September 30, 2021 | |
Stock Options | |
| 4,667,451 | | |
| 4,360,344 | |
Warrants | |
| 837,500 | | |
| 87,500 | |
Convertible Notes | |
| - | | |
| - | |
Total | |
| 5,504,951 | | |
| 4,447,844 | |
NOTE 10. RELATED PARTY TRANSACTIONS
Augmented Reality Investments Pty Ltd (“ARI”)
In March 2022, the Company lent to ARI, the entity
from which the assets of AUGGD (see Note 11) were bought, $0.25 million pursuant to a secured promissory note due March 31, 2024. The
two owners of ARI are currently an employee and a non-employee advisor to the Company.
The note bore interest at the rate of 1% per annum
and was secured by the borrower’s common shares of the Company. Any sales of said shares shall be used to prepay the note, unless
otherwise agreed to by the Company.
The note and any accrued interest were extinguished
in July, 2022. See Note 11.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Lease Costs
The Company made cash payments for all operating leases
for the three months ended September 30, 2022 and 2021, of approximately $0.13 million and $0.09 million, respectively, all of which were
included in cash flows from operating activities within the consolidated statements of cash flows. The Company’s operating leases
have a weighted average remaining lease term of 1.9 years and weighted average discount rate of 7.9%.
The total rent expense for all operating leases for
the three months ended September 30, 2022 and 2021, was approximately $0.13 million and $0.09 million, respectively, with short-term leases
making up an immaterial portion of such expenses.
Lease Commitments
The Company has various operating leases for its offices.
These existing leases have remaining lease terms ranging from 1 to 4 years. Certain lease agreements contain options to renew, with renewal
terms that generally extend the lease terms by 1 to 3 years for each option. The Company determined that none of its current leases are
reasonably certain to renew.
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2022 AND 2021
Future approximate undiscounted lease payments for
the Company’s operating lease liabilities and a reconciliation of these payments to its operating lease liabilities at September
30, 2022 are as follows:
SCHEDULE
OF UNDISCOUNTED LEASE PAYMENTS
| |
| |
Years
Ended June 30, | |
| |
2023
(nine months) | |
$ | 364,000 | |
2024 | |
| 447,000 | |
2025 | |
| 319,000 | |
2026 | |
| 96,000 | |
Total
future minimum lease commitments, including short-term leases | |
| 1,226,000 | |
Less:
future minimum lease payments of short -term leases | |
| (10,000 | ) |
Less:
imputed interest | |
| (149,000 | ) |
Present
value of future minimum lease payments, excluding short term leases | |
$ | 1,067,000 | |
| |
| | |
Current
portion of operating lease liabilities | |
$ | 442,000 | |
Non-current
portion of operating lease liabilities | |
| 625,000 | |
Total
operating lease liability | |
$ | 1,067,000 | |
Contingent Consideration for Acquisitions
Contingent consideration for acquisitions, consists
of the following as of September and June 30, 2022 respectively:
SCHEDULE
OF CONTINGENT CONSIDERATION FOR ACQUISITIONS
| |
September
30, 2022 | | |
June
30, 2022 | |
| |
As
of | | |
As
of | |
| |
September
30, 2022 | | |
June
30, 2022 | |
S5D, current portion | |
$ | 1,924,000 | | |
$ | 1,397,600 | |
BLI, current portion (see
Note 4) | |
| 1,959,000 | | |
| - | |
XRT | |
| 197,498 | | |
| - | |
AUGGD | |
| - | | |
| 568,571 | |
Subtotal
current portion | |
| 4,080,498 | | |
| 1,966,171 | |
S5D, net of current portion | |
| 7,053,900 | | |
| 5,340,800 | |
BLI, net of current portion
(see Note 4) | |
| 4,346,400 | | |
| - | |
Total
contingent consideration for acquisitions | |
$ | 15,480,798 | | |
$ | 7,306,971 | |
XRT
In October 2021, the Company, through its wholly owned
subsidiary company, XRT, completed an acquisition of certain assets, as defined, from XR Terra, Inc.
In September 2022, XRT achieved a revenue performance
milestone as defined in the asset acquisition agreement, and is due approximately $0.2 million (at fair value) of Company common stock.
This additional consideration is included as change in fair value of contingent consideration in the consolidated statement of operations
for the three months ended September 30, 2022 and included in contingent consideration for acquisitions, current portion in the consolidated
balance sheet as of September 30, 2022. As of September 30, 2022, it is not anticipated that XRT will meet any future consideration thresholds
as defined in the asset acquisition agreement.
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2022 AND 2021
AUGGD
In August 2021, the Company, through its wholly owned
subsidiary company, AUGGD, completed an acquisition of certain assets, as defined, from ARI.
In June 2022, AUGGD achieved its initial revenue threshold
as defined in the asset acquisition agreement, and was issued shares of Company stock in July 2022 reflecting the payment of additional
asset acquisition consideration. The share issuance was done inclusive of netting the outstanding balance of a $0.25 million note receivable
due the Company by ARI (see Note 10). This additional consideration of approximately $0.57 million was included contingent consideration
for acquisitions, current portion in the consolidated balance sheet at June 30, 2022. As of September 30, 2022, it is not anticipated
that AUGGD will meet any future consideration thresholds as defined in the asset acquisition agreement.
Potential Future Distributions Upon Divestiture
or Sale
Upon a divestiture or sale of a subsidiary company,
the Company is contractually obligated to distribute up to 10% of the net proceeds from such divestiture or sale to the senior management
team of the divested subsidiary company. Currently, there were no active discussions pertaining to a potential divestiture or sale of
any of the Company’s subsidiaries.
COVID-19
The COVID-19 pandemic caused significant business
and financial markets disruption worldwide and there was significant uncertainty around the duration of this disruption and its ongoing
effects on our business. This has primarily manifested itself in prolonged sales cycles.
We continue to monitor the situation and the effects
on our business and operations. While some level of potential uncertainty remains, given the current state of the pandemic, our expected
revenue growth and current cash balance, we do not expect the impact of COVID-19 to be material to our business and operations.